EXCLUSIVE: Councillors were being briefed tonight that the government has agreed to a £120m loan arrangement for the bankrupt borough – but it will take at least 20 years for the council to pay down its mountain of debt.
By STEVEN DOWNES
Croydon should be able to go ahead and set its budget on Monday, after the Ministry for Housing, Communities and Local Government today issued an 11th-hour agreement to allow the bankrupt council to borrow £70million this financial year and another £50million in 2021-2022 to fix its financial mess.
At £120million, Croydon’s bail-out is the largest settlement for a local authority in British history.
In December, Croydon submitted a request to MHCLG for a £150million capitalisation direction over three years. The government’s decision reduces that amount, and is over just two years. It also comes with a series of strings attached and warnings of dire consequences if the council does not improve its financial management and governance.
It will also see Croydon residents paying off the new borrowing for the next 20 years, at least.
It was just after 5pm this evening when Hamida Ali, the leader of the Labour-controlled council, received a letter about “exceptional financial support” from Luke Hall, the local authorities minister, which confirmed the offer and the terms and conditions which will be attached. The deal has the approval of Robert Jenrick, the Secretary of State.
Ali shared the news with her fellow Labour councillors in a virtual meeting that began at 7pm.
They now have until next Friday, March 12, to decide whether to accept the government’s terms. They really don’t have much choice.
On Monday, March 8, the council cabinet meets to discuss the arrangements, with a full council meeting that evening to set the borough’s budget and Council Tax for 2021-2022.
The government appears intent to punish Croydon, and its Labour politicians, by charging an extra 1 per cent over its usual borrowing rates from the Public Works Loans Board over the 20-year term of the loan – in that time costing the borough’s tax-payers an extra £24million.
Croydon declared itself effectively bankrupt in November, when it had overspent its budget for this financial year by £66million. The pressures of running the borough during the coronavirus pandemic had come at a high cost, and the council had rundown its reserves to dangerously low levels.
As Inside Croydon revealed exclusively last week, that overspend figure has now soared to £96.5million, as the council has failed to put the brakes on and spent a further £31.8million beyond its means in the first three months of 2021.
The government kept the council waiting until after Wednesday’s Budget statement by the Chancellor for a decision on whether it would allow the extra borrowing. The MHCLG has already agreed capitalisation directions arising out of the covid emergency for five other local authorities, including another south London borough, Bexley. Only one of those loans is for more than £10million.
The government’s deal could see Croydon having to find another £45million-worth of savings in the next financial year – 2021-2022 – but Hall’s letter makes it clear that the MHCLG expects Croydon to follow-through on its “asset disposal plan”, which includes flogging off some of the council’s less-than-shrewd “investments”, such as the Croydon Park Hotel.
It will also expect the council to generate cash from the sale of Brick by Brick properties and sites.
Even with the government deal, the council will be reduced to providing only the bare minimum, legally-required services, while continuing to make staff redundant and closing libraries, recycling centres and other council-owned facilities.
Hall’s letter to Croydon expresses the expectation that the council will continue to “co-operate closely” with the government-imposed improvement panel. Failure to achieve the necessary financial targets or follow the recommendations of Tony McArdle and the improvement panel will, Hall warns, see the management of the borough taken out of the council’s hands and commissioners appointed.
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